Why South America Is a Hot Spot for Exporting
You’d like to export your products, but it’s complicated business: international tariffs, regulatory agencies, language barriers. And what if you don’t get paid? Taking a foreign distributor to court can be difficult, if not impossible.
Yet, the payoff for going overseas can be substantial. In fact, for some U.S.-based companies, the decision to export has been key in weathering the dreary financial situation at home.
But where in the world is the best place to start? And what’s the easiest way to go about it?
With the BRIC nations, says Michael Andrews. He's the CEO of Castelmec, a New Jersey-based market expansion services company with clients that include Canon, Sharp, and HP.
The rapidly growing economies of Brazil, Russia, India, and China will be responsible for almost 50 percent of the increase in global GDP by 2020, according to Goldman Sachs. When you put them all together they make up more than a quarter of the planet’s land area and 40 percent of its population.
Andrews is especially keen on getting small- to medium-sized manufacturers to look at Brazil and the rest of South America, his company's area of expertise. He says the fact that Rio de Janeiro will be hosting the 2016 Olympics—the first time the games will be held in South America—is one indicator that it’s a region the world is taking more seriously.
Some others agree. According to economist Gabriela Castro-Fontoura, many businesses now have South America on their radars. “Most of the countries have been growing steadily for a few years now at rates as high as 9 percent a year," says Castro-Fontoura, who writes for the website Global Trader. "Uruguay is praised worldwide for its careful management, unlike some EU countries. Colombia is making huge progress in terms of investment ratings, and many [South American] countries are signing trade agreements with EU countries."
Unlike a distributor that can take the reins away from manufacturers who would rather control their brand identity, customer service, and the like, Castelmec is a market expansion services company. It’s different from a traditional distributor in a couple of ways.
First, Castelmec invests its own money into a market development fund that’s used to promote a brand. Usually over the course of about three months Castelmec matches about $30,000 a customer puts into the fund. That means it’s not going to take on a client if it doesn’t think it can sell its products.
After doing a market analysis Castelmec provides clients with an execution plan and a business plan outlining how it will launch a brand into the South American markets that make the most sense.
“It could be as many as seven, but based on the product, the way the market operates, tariffs, customs, and duties it may or may not make sense to launch in every country all at once,” Andrews says.
From there, Castelmec provides customers with regional sales and support, making use of a database of thousands of local market dealers that was developed by founder Brian Tedesco, who manages the company’s Latin American operations based in Montevideo, Uruguay.
Clients also get South American customer service representatives, a sales team, supply chain management and logistical support, strategic planning and reporting, and IT infrastructure.
Andrews says Castelmec buys inventory from customers, taking responsibility for importing product into South America. The company makes money by taking a 15 to 20 percent commission on the profits from sales. It also assumes the risk on receivables because it has receivables insurance in place.
Andrews says the market expansion services model is more transparent than the one used by distributors who often guard sales channel information closely.
The other thing Andrews says Castelemec has going for it is that it’s a U.S. company, meaning all contracts are based on U.S. law and are enforceable in U.S. court.
It's one of only a handful of such companies in the world, he says. DKSH, for example, is a huge Zurich-based market expansion services company that takes products to Asian markets. Cyprus-based Kompreni pushes products into Europe, the Middle East, and Africa.
So far, Castelmec's strategy seems to be working: Before Sharp Electronics hired the company, it had only seven master distributors in the region; with Castelmec's help, now it has more than 650 local dealers purchasing Sharp copier products. And in one year HP's printer spare parts division went from just over $200,000 in dealer sales in Brazil to more than $3 million.
Still nervous about going international? Check out these small businesses who have exported overseas successfully.